PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Telecommunications Division	RESOLUTION T-16532
Public Programs Branch	June 14, 2001

R E S O L U T I O N

RESOLUTION T-16532. CITIZENS TELECOMMUNICATIONS COMPANY OF CALIFORNIA, INC. REQUEST TO IMPLEMENT A TEMPORARY CALIFORNIA HIGH COST FUND-B CATCH-UP SURCREDIT IN COMPLIANCE WITH DECISION 98-09-039.

ADVICE LETTER 698 FILED ON APRIL 13, 2001.

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SUMMARY

On April 13, 2001, Citizens Telecommunications Company of California, Inc. (Citizens) filed Advice Letter 698 in compliance with Ordering Paragraph (OP) 20 of Decision (D.) 98-09-039 that required Citizens to implement a catch-up surcredit for a 3-month period relating to the California High Cost Fund (CHCF-B) claims. This resolution approves a temporary three-month catch-up surcredit of 34.41% to offset Citizens' approved claims of $2.280 million for the time period from February 1997 to August 1998. The catch-up surcredit of 34.41% will apply to all intrastate services, except residential basic exchange service and certain other services, and will be effective July 1, 2001 through September 30, 2001. In addition, Citizens will track in a memorandum account all catch-up surcredit amounts applied to customer accounts during the July 1, 2001 through September 30, 2001 period. Any difference between the aggregate realized catch-up surcredit amount and the adopted surcredit amount will be trued-up by an Advice Letter within 60 days from September 30, 2001.

BACKGROUND

On March 12, 2001, the Director of Telecommunications Division (TD) requested Citizens to file an Advice Letter on or before April 16, 2001 to implement a catch-up surcredit for its approved CHCF-B claims for February 1997 through August 1998. The catch-up surcredit amount will be offset by the claims paid by the CHCF-B Administrative Committee (AC) in order to achieve revenue neutrality for Citizens.

1. D.96-10-066

In D.96-10-066, the Commission established the CHCF-B program to provide universal service subsidy support in the high cost areas of the service territories of Citizens and three other local exchange carriers (LECs). ¹ By establishing the CHCF-B program, the Commission is ensuring the continued availability of residential telephone basic service at affordable rates in high cost areas. The CHCF-B program will provide support for only one residential line per household. One outcome of the CHCF-B program is to reduce any disparity in residential basic telephone rates between urban and rural areas.

To prevent Citizens and the other three LECs from receiving a windfall, the four carriers are required to reduce rates for all intrastate services, except for residential basic exchange services and certain other services, ² by amounts equal to the CHCF-B fund draws. Residential basic exchange service is excluded because the CHCF-B program supports this service in high cost areas. In addition, if reducing the rates for residential basic service is allowed, the Commission stated, "this would widen, rather than narrow, the gap between the residential rates and their costs." ³

2. D.98-09-039

In D. 98-09-039, the Commission partially implemented the CHCF-B program through a self-funding mechanism since the trust account for CHCF-B was not established until October 1999. Under this partial implementation, Citizens ⁴ and the three other LECs offset their monthly draws from the CHCF-B program by a surcredit. ⁵ Besides this surcredit, Citizens (as well as the other LECs) is required to implement a catch-up surcredit pursuant to OP 20 of D.98-09-039. Specifically OP 20 of D.98-09-039 states:

"Each large LEC shall file an advice letter to implement its catch-up surcredit in accordance with the instructions issued by the Director of the Telecommunications Division .... Each large LEC shall implement its catch-up surcredit over three calendar months."

Under the provisions of D.98-09-039, once the catch-up surcredit is implemented, the CHCF-B AC is to distribute the catch-up amount in three monthly installments paid on the 15^th day of each calendar month that the LEC's catch-up surcredit is in effect. In addition, each LEC is required to true up its catch-up surcredit to match the amount of the claims approved by the CHCF-B AC.

The CHCF-B AC approved the CHCF-B claims for the period from February 1997 through December 1999 (including the catch-up period from February 1997 through August 1998) in its December 14, 2000 Administrative Committee meeting.

NOTICE/PROTEST

The notice of Citizens' Advice Letter was published in the Commission Daily Calendar of April 20, 2001. Citizens mailed a copy of the Advice Letter to interested utilities and/or parties. On May 10, 2001, AT&T Corporation made a timely filed protest to the Advice Letter.

COMMENTS

A draft resolution, prepared by the TD staff, on the recommended catch-up surcredit was mailed on May 15, 2001, in accordance with Public Utilities Code Section 311 (g) to the parties of record in R.95-10-020/I.95-010-021 and to Pacific, Verizon, and Roseville. The TD staff received no comments on the draft resolution to date.

DISCUSSION

The TD recommends that the Commission adopt a temporary catch-up surcredit of 34.41% for Citizens for a 3-month period starting July 1, 2001 through September 30, 2001. The catch-up surcredit will be applied to all intrastate services provided by Citizens except residential basic and certain other services. The surcredit is based upon the CHCF-B claims of $2.280 million for the period from February 1997 through August 1998.

1. Adopting A Temporary Catch-Up Surcredit

The estimated catch-up surcredit rate of 34.41% is based upon the CHCF-B approved claims of $2.280 million for the period from February 1997 to August 1998 and three month total of monthly average of 12 months ending January 31, 2001 recorded billing base. The billing base adjusts out billings for residential basic service and certain other services, uncollectibles, and billing adjustments. We will adopt Citizens' proposed billing base and the 34.41% catch-up surcredit rate.

The catch-up surcredit rate of 34.41% will begin on the first day of the month and will be effective for three months, beginning July 1, 2001 and ending September 30, 2001. The estimated catch-up surcredit rate of 34.41% will be in addition to previously adopted provisional permanent surcredit rate of 3.07% adopted in Resolution T-16239, dated November 19, 1998. The total surcredit rate of 37.48% will apply to all intrastate services except residential basic service and certain other services.

Pursuant to OP 27 of D.98-09-039, Citizens is required to show the permanent and catch-up surcredits as a single line item on customers' bills. In addition, Citizens will explain the CHCF-B catch-up surcredits to their customers in the free form section of the customer bill.

We will adopt the recommended catch-up surcredit rate of 34.41% beginning on the first day of the month and ending three months later, or July 1, 2001 and ending September 30, 2001. The CHCF-B AC will distribute the catch-up amount in three equal monthly installments paid on the 15^th day of each calendar month that the Citizens' catch-up surcredit is in effect.

2. Tracking the Temporary Catch-Up Surcredit

D.96-10-066 requires Citizens to establish a memorandum account to track the catch-up surcredit rate reductions. Citizens is required to establish a separate account, entitled "Accounts Payable End User Catch-Up Claim/Surcredit" to record all catch-up surcredits applied to customer accounts during the period July 1, 2001 through September 30, 2001 (inclusive).

3. True-Up of Temporary Catch-Up Surcredit

OP 25 of D.98-09-039 mandates a true up of Citizens' catch-up surcredit with the catch-up amount of $2.280 million adopted by the Commission. Citizens will be required to file an Advice Letter within 60 days from the end of its catch-up period, or no later than November 29, 2001. Any difference between the aggregate realized catch-up surcredit and the adopted catch-up surcredit will accrue interest starting on the first day from the end of the catch-up period, or November 30, 2001, to the starting date of the true-up, whether the true-up is a surcredit or surcharge amount. The true-up surcredit/surcharge amount accrues interest based on the average seven-day compound yield on taxable money market funds published in the Wall Street Journal each Thursday.

As part of its true-up Advice Letter filing, Citizens will provide workpapers, or make available documents at Citizens' office in Elk Grove, CA, supporting the surcredit/surcharge amount. Citizens should expect an audit sampling by the TD staff (or auditors operating under the direction of TD staff) to verify the true up surcredit/surcharge amount.

4. Resolution T-16440 Audit Requirements

Public Utilities Code 274 requires the Commission to conduct a compliance audit of program-related costs including CHCF-B claims. The approval of Citizens claims from February 1997 through December 1999, including the catch-up period from February 1997 through September 1998, by the CHCF-B AC was subject to this audit requirement. If an audit determines that Citizens' claims should be lower than the catch-up amount of $2.280 million, Citizens may be required by the CHCF-B AC to return the difference with interest to the CHCF-B fund. Interest is based on the average seven-day compound yield on taxable money market funds published in the Wall Street Journal each Thursday. If such action results in amounts being returned to the CHCF-B fund, Citizens may not seek recovery from the ratepayers or the CHCF-B fund for the difference.

FINDINGS

1. Citizens Telecommunications Company of California Inc.'s (Citizens') proposed surcredit amount of $2.280 million, as approved by the California High Cost Fund-B (CHCF-B) Administrative Committee (AC) for CHCF-B claims, is reasonable and should be adopted.

2. Citizens' proposed surcredit of 34.41% applicable to all intrastate services, except residential basic service and certain other services, over three months is reasonable and should be adopted.

3. The surcredit amount will apply on the first day of the month, or July 1, 2001, and will apply for 3 months, or through September 30, 2001.

4. CHCF-B Administrative Committee will distribute the catch-up amount of $2.280 million, in three equal monthly installments to be paid on the 15^th day of each calendar month that the Citizens' catch-up surcredit is in effect.

5. Citizens' proposed surcredit of 34.41% is in addition to the current 3.07% provisional permanent surcredit relating to the CHCF-B claims.

6. Citizens is required to show the permanent and catch-up surcredits as a single line item on customers' bills.

7. Citizens will explain the CHCF-B catch-up surcredit to their customers in the free form section of the customer bill.

8. Citizens will track the catch-up surcredit rate reduction by establishing a memorandum account, entitled Accounts Payable End-User Catch-Up Claim/Surcredit.

9. Citizens will file an Advice Letter within 60 days from the end of the catch-up period, or no later than November 29, 2001, to true-up the catch-up surcredit.

10. Citizens will include interest, based upon the average seven-day compound yield on taxable money market funds published in the Wall Street Journal, starting on the first day from the end of the catch-up period, or October 1, 2001, to the day of the start of the actual true-up, if any.

11. Any adjustments resulting from claims audits of CHCF-B claims from February 1997 through December 1999, including the catch-up period, will not be recoverable from the ratepayers or the CHCF-B fund.

THEREFORE, IT IS ORDERED that:

1. Citizens Telecommunications Company of California Inc.'s catch-up surcredit amount of $2.280 million and surcredit rate of 34.41%, as filed in Advice Letter 698 by Citizens Telecommunications Company of California Inc. (Citizens) on April 13, 2001, is adopted. The catch-up surcredit rate shall apply to billings for all intrastate services, except residential basic service, coin-sent paid calls, and contracts from July 1, 2001 through September 30, 2001. The catch-up surcredit of 34.41% is in addition to the current 3.07% provisional permanent surcredit relating to the CHCF-B claims.

2. The CHCF-B Administrative Committee shall distribute the catch-up amount of $2.280 million, in three equal monthly installments paid on the 15^th day of each calendar month that Citizens' catch-up surcredit is in effect.

3. Citizens shall show the permanent and catch-up surcredits as a single line item on customers' bills and explain the CHCF-B catch-up surcredit to their customers in the free form section of the customer bill.

4. Citizens shall track the catch-up surcredit rate reduction by establishing a memorandum account, entitled Accounts Payable End-User Catch-Up Claim/Surcredit.

5. Citizens shall file an Advice Letter within 60 days from the end of the catch-up period, no later than November 29, 2001, to true-up catch-up surcredit.

6. Citizens shall include interest, based upon the average seven-day compound yield on taxable money market funds published in the Wall Street Journal, starting on the first day from the end of the catch-up period, or October 1, 2001, to the day of the start of the actual true-up, if any.

7. Any adjustments resulting from claims audits of CHCF-B claims from February 1997 through December 1999, including the catch-up period, shall not be recoverable from the ratepayers or the CHCF-B fund.

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on June 14, 2001. The following Commissioners approved it:

WESLEY M. FRANKLIN Executive Director

STATE OF CALIFORNIA Gray Davis, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 15, 2001

To: Parties of Record in R95-01-020/I.95-01-021

Draft Resolutions T-16531 and T-16532 approve the California High Cost Fund-B catch-up surcredits of 19.3% and 34.41% for Verizon California, Inc. and Citizens Telecommunications Company of California, Inc., respectively. Each company will implement the catch-up surcredit for three months, beginning July 1, 2001 and ending September 30, 2001. The catch-up surcredit will apply to intrastate services, except residential basic exchange service and certain other services.

Hard copies of the draft resolutions are being mailed to the parties of record in R.95-01-020/I.95-01-021. A copy of these draft resolutions is also available to the public at the Commission's web site at www.cpuc.ca.gov. If you are not a party to the proceeding, and you do not have Internet access, you may obtain copies of the draft resolutions or conformed resolutions by contacting the Telecommunications Division at (415) 703-1638.

Pursuant to Public Utilities (PU) Code 311 (g), these draft resolutions are available for public comments. Opening comments should be focused on factual, legal, and/or technical errors in the draft resolutions. Opening comments must be limited to five pages in length and shall include a subject index listing the recommendations to the draft resolutions, a table of authorities, and an appendix setting forth the proposed revised findings and ordering paragraphs.

These draft resolutions will be on the agenda of the Commission's June 14, 2001meeting which is to be held 30 days from the above mailing date. The Commission may vote on each resolution, or it may postpone a vote until later. When the Commission votes on each draft resolution, it may adopt all or part of it as written, amend, or modify it, or set it aside and prepare a different resolution. Only when the Commission acts do the resolutions become binding on the parties.

Comments on Resolutions T-16531 and T-16532 should be addressed as stated below. The date of submission is the date the comments are received by the Telecommunications Division. Parties must serve a copy of their comments on each party set forth on the service list attached to each draft resolution, on the same date that the comments are submitted to the Telecommunications Division.

Opening comments must be received no later than May 30, 2001 (which is 15 days from the date of this mailing). Reply comments may be submitted on or before June 4, 2001 (5 days after opening comments are submitted) and shall be limited to identifying misrepresentations of law, fact, or condition of the record contained in the comments of other parties. Replies shall not exceed three pages in length and shall be submitted and served in the same manner as opening comments.

Late-filed opening comments and/or reply comments will ordinarily be rejected. However, in extraordinary circumstances, a request for leave to submit comments or replies late may be filed together with proposed comments/replies. An accompanying declaration under penalty of perjury shall be submitted setting forth all the reasons for the late submission.

Opening comments and reply comments on each resolution should be addressed to

Hassan Mirza and mailed to California Public Utilities Commission, Telecommunications Division, 505 Van Ness Avenue, 3^rd Floor, San Francisco, CA 94102.

David M. Shantz, Program Manager

Public Programs Branch, Telecommunications Division

Enclosure for the Parties of Record in R.95-01-020/I.95-01-021 (Draft Resolutions)

¹ The other three carriers are Pacific Bell (Pacific), Verizon California, Inc, and Roseville Telephone Company (Roseville).

² Other services are coin-sent paid calling, debit card messages, one-way radio paging, COPT usage, contracts existing on or prior to 9/15/94, ULTS services, and directory advertising.

³ D.96-10-066, page 209.

⁴ Resolution T-16239, dated November 19, 1998 approved Citizens surcredit of 3.07% on provisional permanent basis.

⁵ Pacific Bell implemented permanent rate reductions as a result of D.98-07-033. D.98-07-033 allows Pacific Bell to "true-up" its rate reduction with its approved fund draws from the CHCF-B program.